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The new French wealth tax: understanding the perimeters of the Impôt sur la Fortune Immobilière

Sun, 03/25/2018 - 10:05

Since 1st January 2018, the ISF (Impôt de Solidarité sur la Fortune) has been replaced by the new annual real estate wealth tax, known as IFI (Impôt sur la Fortune Immobilière), which is a tax on immovable property whose taxable base is limited to non-business related real estate assets.

Therefore, securities, banking and financial investments, cash, jewels, furniture, shares, fine wines and other valuables are excluded. The premises used for the taxpayer’s main professional activity and property used for furnished rental activity (provided the landlord is a registered professional landlord) are also exempt from the new wealth tax.

IFI is based on the wealth of the household, including spouse and children. Unmarried couples living together are treated as one household for wealth tax purposes.

If you are French resident, there is also a 30% allowance against the value of your principal home. This does not apply to second homes and/or in relation to a property held through a Société Civile Immobilière (SCI).

Non-residents will only be liable for this tax based on real estate located in France. The tax threshold remains the same in 2018: €1.3 million (net asset value).

We would like to draw your attention to the following deductible liabilities:

- Credit in Fine (repayable in one single payment at the end of the contract, allowing the deductibility of fixed-rate debt for the duration of the loan): an amortisation element will be introduced and the deductible amount will reduce annually taking into account the years passed since the subscription of the loan to the entire loan period.

For example: this year, you take a loan in fine of €3 million for five years. Every year, the percentage of deductibility of the loan will decrease by 100/5 = 20% of the initial amount lent, which is €600,000 less annually. Thus: 2019 = € 2.4 million only (80% of the amount lent), 2020 = €1.8 million, 2021= € 1.2 million, 2020 =€600,000 and, starting from 2023, no further deduction will be allowed.

- High value assets (>€5 million): the amount of debts admitted as deductible exceeds 60% of this value, the debt’s excess will be deductible for 50%.

For example: this year, you purchase a property for €5 million, fully financed by a loan, therefore the loan’s capital deductibility will be €4 million. Thus the amount of€3 million (the debt not exceeding 60%) is completely deductible. The remaining amount of €2 million (debt’s excess of 60%) remain deductible for €1 million (50%). Our law firm is here to assist you in choosing the best strategy for fiscal follow-up of your French assets as well for any real estate project in France.